Alibaba Group Holding wants its mobile operating system to run millions of smartphones in China. The fastest solution: spend some of its cash hoard on a handset-maker.
Vice-chairman Joseph Tsai, laying out plans for the next decade, said last month that Alibaba’s homegrown system, YunOS, can knit services together for the company as Asia’s largest e-commerce giant steps beyond clothes and gadgets to entertainment and health care. With a market value of $266 billion, Alibaba has struggled to push YunOS in China, where more than nine out of 10 mobile devices use Google Android.
Fresh from an $8 billion bond sale, Alibaba could pursue a possible stake in Xiaomi, China’s largest smartphone seller. Or it could invest in Hong Kong-listed Coolpad to guarantee that YunOS is installed on the factory floor. After Microsoft and Google misfired with high-profile takeovers of handset makers, another option is to target one of the dozens of smaller, closely held manufacturers in China, according to research firm Canalys. “We expect Alibaba to take several attempts at the smartphone market over the next decade,” said Neil Mawston, executive director in the global wireless practice at Strategy Analytics in Milton Keynes, England. “Alibaba is too big, and mobile is too big, to ignore.” Bob Christie, a spokesman for Alibaba, declined to comment on whether the company is interested in Xiaomi or Coolpad.
Broadening ambitions
Alibaba, co-founded in 1999 bychairman Jack Ma in his apartment with $60,000, runs marketplaces including Taobao, which links individual buyers and sellers, and Tmall.com, which connects retailers and consumers, has about $20 billion of cash and equivalents on its balance sheet.
Ma’s not stopping there. He has since toured Hollywood looking for content to win and keep customers.
The company’s mobile operating system is key because China’s online shoppers are migrating from computers to phones and tablets. Alibaba wants YunOS to connect its ever-widening range of services.
Home-grown
According to Tsai, Alibaba’s long-term goal is to have YunOS in tens of millions of smartphones. That aim dovetails with the government’s push for manufacturers to reduce dependence on Android and its promotion of national champions to rival Google and Apple.
“Local smart devices are heavily reliant on the Android camp,” China’s ministry of industry and Information Technology wrote in a February 2013 report. “The development of self-made operating systems is significantly difficult.”
Some smaller manufactures have adopted YunOS. Shenzhen Sang Fei Consumer Communications makes phones running the operating system under the Philips brand and Meizu Technology adopted YunOS this year. Even so, Alibaba doesn’t yet have a backer among the biggest handset vendors in China. “We always take the long view– 10, 15 years,” Tsai said. “What really matters is that in the long run a lot of people are using phones with our OS.”
Xiaomi ‘possibility’
Android has such a grip in China, the world’s largest smartphone market, that Alibaba needs to do more than just make another mobile operating system, said Vanessa Zeng, an analyst at Forrester Research.
A collaboration with Xiaomi is a “possibility” because Alibaba will struggle to win market share on its own, she said. Xiaomi is in talks to raise funds that value the closely held company at as much as $50 billion, people familiar with the matter said last month.
Founded only in 2010, Beijing-based Xiaomi is the world’s third-largest smartphone vendor thanks in part to its domestic success selling directly to consumers online, according to Strategy Analytics. While an Alibaba-Xiaomi partnership could have the heft to challenge Android’s market dominance, Xiaomi’s ambitions with it own operating system, called MIUI, might thwart any alliance. “Xiaomi is all about integrating hardware and software and building an ecosystem around that with apps and internet services,” said Hans Tung, a Xiaomi investor. “Xiaomi has built that around MIUI. MIUI and YUN are two different systems.”
